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Median Incomes Fell for All But Richest in 2010-13, Fed Says

By Victoria Stilwell and Craig Torres
September 05, 2014 12:00 AM EDT 214 Comments
Employees prepare the showroom of a Ferrari SpA dealership in downtown La Jolla, California.
Photographer: Sam Hodgson/Bloomberg
Employees prepare the showroom of a Ferrari SpA dealership in downtown La Jolla, California.

Only the richest Americans enjoyed gains in income from the economic recovery during 2010-2013, as median earnings fell for all others, a report from the Federal Reserve showed.

Median income adjusted for inflation rose 2 percent to $223,200 for the wealthiest 10 percent of households from 2010 to 2013, the Fed said yesterday from Washington in its Survey of Consumer Finances, taken every three years. The bottom 60 percent saw the biggest declines.

Household wealth and incomes have become increasingly stratified during the recovery, thanks in part to gains in the stock and housing markets that have been boosted by the Fed’s unprecedented stimulus. The labor market has been slower to progress, with wages remaining stagnant for many workers. The Fed survey suggests much of the divide is driven by the changing nature of work in America.

“What we have seen in recent years is the polarization of the labor market” as job growth is skewed toward the highest and lowest skill levels, hollowing out the middle, said Dean Maki, chief U.S. economist at Barclays PLC in New York. “That seems to be coming through in the Fed data.”

Low-Skill Work

As jobs that require some skills disappear or are replaced with technology, more workers are left competing for low-skill jobs, depressing wages further. Average hourly earnings for production and non-supervisory workers, for example, are up just 6 percent before inflation in the three-year period of the survey.

The median, or mid-point, income for all families fell 5 percent from 2010 to 2013, while mean, or average, income climbed 4 percent, the data show. That’s “consistent with increasing income concentration during this period,” the report stated.

Fed Chair Janet Yellen has made reducing labor market slack a signature goal of her leadership at the Fed. She called rising disparity in both incomes and wealth “very disturbing” at a May hearing before the Joint Economic Committee of Congress.

The latest Fed survey “reveals substantial disparities in the evolution of income and net worth” since 2010.

Piketty’s Best-Seller

The widening gap between rich and poor has come into sharp focus among policy makers and economists around the world, partly due to Thomas Piketty’s best-seller, “Capital in the 21st Century.” The French economist examined centuries of data on countries including the U.S., Sweden, France and the U.K. to show that returns on capital in excess of economic growth lead to greater wealth disparities.

The 2013 Fed survey found median net worth fell 2 percent to $81,200 from 2010 to 2013, while mean net worth was little changed at $534,600. Gains in income and wealth aren’t confined to just the top 1 percent of families, the Fed researchers wrote.

The Fed data showed that the share of income received by the top 3 percent of families rebounded to 30.5 percent in 2013, from 27.7 percent in 2010. For the next highest 7 percent, though, the share of income hadn’t changed during the previous quarter-century, “sitting slightly below 17 percent” in both 1989 and 2013.

Household Assets

Households with access to assets such as homes and stock portfolios have found their wealth buoyed over the last three years. The Standard & Poor’s 500 Index (SPX) climbed 47 percent in the three years ended December 2013, while the S&P/Case Shiller index of property values climbed 13.4 percent.

Americans without such assets may have found the recovery in their finances slower going, partly because of a labor market that’s been gradual in gaining momentum.

With a “substantial degree” of labor market slack, “the need for extraordinary accommodation is unambiguous,” Yellen said in an Aug. 22 speech at the Kansas City Fed’s economic conference in Jackson Hole, Wyoming.

The top 10 percent of families by wealth got 46.7 percent of their pre-tax income from wages in 2013, down from 55.8 percent in 2010, the survey found. The share earned from capital gains climbed to 10.6 percent from 2.3 percent.

That compares with the 73.7 percent received from wages by the poorest households in 2013, a decrease from 75.9 percent three years earlier. Those families received less than 0.05 percent of their incomes from capital gains last year.

There were also disparities in changes of median and mean family business equity. The survey showed that median family business equity fell by 20 percent. The mean value of business equity rose 15 percent.

“This change indicates that losses in business equity were not equally distributed, and many business-owning families experienced large gains, while the median business-owning family experienced a loss,” the report said.

Retirement Accounts

The proportion of families with retirement accounts decreased 1.2 percentage points to 49.2 percent during the three years ended 2013, according to the report. The decline was driven by those in the bottom half of the income distribution, while participation among families in the top 10 percent increased.

Households have spent much of the economic expansion cleaning up their balance sheets, and many remain cautious about taking out more loans. The share of families holding any type of debt declined to 74.5 percent in 2013 from 74.9 percent in 2010, while the median value of the debt fell 20 percent to $60,400.

The share of those with mortgages or other home-secured debt declined to 42.9 percent from 47 percent in the same time frame. That overshadowed a drop in the percentage of families who owned a home, which fell to 65.2 percent last year from 67.3 percent in 2010.

Credit-Card Debt

Credit-card debt as a share of household borrowings was at 2.4 percent, a record low in data from the consumer finances survey going back to 1989. The median family credit card balance was $2,300 last year, down from $2,800 in 2010.

Fed economists conduct the survey once every three years to produce a snapshot of household balance sheets, pensions, income and demographics that’s more detailed than broader reports about the economy. The surveys allow comparisons over time, with consistent methodology since 1989.

The Fed defines income as wages, self-employment and business income, taxable and tax-exempt interest, dividends, realized capital gains, food stamps and other government support programs, pensions and withdrawals from retirement accounts, Social Security, alimony and other support payments.

To contact the reporters on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Mark Rohner, Carlos Torres

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